Entries tagged with “food bubble”.

Updated 7 June 2011: I can find no evidence that any of my TIAA-CREF funds are holding Glencore.  So far, so good . . .


No Glencore in my Vanguard 2025 Fund (kid’s college fund).  Sadly, though, there is Gazprom.  And probably a hell of a lot of other problematic stuff . . . nobody is clean, I tell you.



As a geographer, I spend a lot of time thinking about interconnections – how events and processes in one place influence events and processes in other places.  I use these interconnections as a teaching tool in my courses, to help students understand how, for example, our levels of consumption here in the US preclude similar levels of consumption for the rest of the world (not enough resource out there to make that happen).  I am always careful to make sure that the students understand that I am as bound up in these linkages as they are – I certainly do not live off the grid, walking/riding a bike everywhere and eating only food I grow (or that is grown locally).  But it still hurts every time a find a new way in which I am bound to, and therefore a cause of, some of the processes I find most frustrating in the world.  So, this excellent post on FairPensions was a bit tough.  Simply put, Glencore, a well-known problem company that trades heavily in the food commodities markets (and appears to be making those markets, as it were, to its own advantage) has been fast-tracked into the FTSE 100, and therefore is now likely part of a lot of the mutual funds and pension plans to which we all make contributions.  I’m going to have to check on this, and pray that TIAA-CREF has some sense, but . . . dammit.

For an earlier discussions of food insecurity and the commodities markets, see here, here and here.

New Scientist has an interview with the authors of a recent report that blames food price shifts on financial market manipulation and speculation.  Worth reading – they are quite clear in their argument.

Is this another crisis like the one we had in 2008?

Not quite. Maximo Torero of the International Food Policy Research Institute (IFPRI) in Washington DC notes that oil, the real driver of food prices and of the 2008 crisis, is relatively cheap, at around $75 a barrel, not over $100 as it was in 2008.

In 2008, both immediate grain prices, and the prices offered for future grain purchases in commodities markets, climbed steadily for months, whereas now they are spiking and dipping more unpredictably, which economists call volatility.

“The market fundamentals – supply and demand – do not warrant the price increases we have seen,” says Torero. Not all harvests have been bad, and after 2008 countries rebuilt grain stocks. “There are enough stocks in the US alone to cover the expected losses in Russia.”

The food riots in Mozambique were not due to world grain prices, he says, but because Mozambique devalued its currency, making imported food more expensive.

So what has been happening this year?

Markets are responding nervously to incomplete information. First there was a series of shocks: Russia’s export ban, lower maize forecasts, then, days later, a US ruling to allow more bioethanol in fuel which seemed likely to further reduce the maize – the main source of bioethanol – available for food. Meanwhile there was no reliable information about grain stocks, which is strategic information that most countries keep secret.

The result was nervous bidding and sporadically surging prices in commodity markets. And that attracted the real problem: investors wielding gargantuan sums of speculative capital and hoping to make a killing. When speculation exacerbated the price crisis of 2008, Joachim von Braun of the University of Bonn, Germany, then head of IFPRI, predicted that it would continue causing problems. “We saw that one coming and it came,” he says. “Food markets have new design flaws, with their inter-linkages to financial markets.”

Volatility also makes it harder to solve the long-term, underlying problem –inadequate food production – by making farmers and banks reluctant to invest in improved agricultural technology as they are unsure of what returns they will get. “Investment in more production alone will not solve the problem,” says von Braun. As long as extreme speculation causes constant price bubbles and crashes, either farmers will not get good enough returns to continue investing in production, or consumers will not be able to afford the food.

“Without action to curb excessive speculation, we will see further increases in these volatilities,” he says.

h/t to Resilience Science

This is very interesting, but what I found intriguing about this article was the researchers’ suggestion for how to address this uncertainty – transparency and information about supplies via remote sensing:

All the major producers already use remote sensing technology to watch each other’s fields. If countries would reveal just once what stocks they hold, says Torero, the satellite images can be used to calculate whether those stocks have risen or fallen, as growing conditions change. “All we need to know is the baseline,” he says. Reliable information about stocks could offset unwarranted jitters about crop failures, such as the ones that are contributing to the current market volatility.

Von Braun goes farther: he says there should be a global technical organisation that keeps track of world grain stocks and production, and which decides, using complex computerised models of world food markets, what range of grain prices are actually warranted by real supply and demand. Then if speculation starts to drive prices up out of this band, countries could intervene on markets, buying and selling just enough to counter speculative pressure. “This doesn’t stop speculation, just extreme speculation,” he says.

He thinks it would take a fund of $20-$30 billion to do the trick. In September the World Bank extended a $2 billion fund to respond to food price crises, but that is aimed at helping the poorest survive price spikes rather than intervening to stop them happening.

You may or not like the idea of a global organization or fund, but the idea of actually monitoring the supplies of the commodities to examine if pricing reflects actual market dynamics (supply/demand controlled for expected future conditions) is fantastic and already possible.  The only people who would lose here are those whose only skill set is in exploiting the uncertainty and lack of information in the market for their own profit – especially those willing to exacerbate uncertainty and opacity to generate larger profits.

Case 1: when you fail to define your basic terms correctly.

Laurie A. Garrett, a senior fellow at the Council on Foreign Relations, tried to write an interesting piece about climate change and food security recently.  Her case is compelling, though she draws far too heavily on a few high profile examples of possible climate impacts on food supply without providing appropriate caveats about the difference between climate change (a trend over time) and climate variability (which can be one-off events, or the byproduct of a larger trend).  This is somewhat standard fare in the popular media, as such caveats really don’t make for good reading.

What got my attention was Garrett’s complete failure to properly define food security.  She argues “The overwrought phrase “food security” connotes literally obtaining sufficient calories and nutrients to stay alive.”  Well, maybe in 1980.  Since then, a tremendous amount of work (to which I have made a very small contribution) has expanded this definition dramatically – food security is about access and entitlement to food and other livelihoods resources – in other words, food security is more than enough calories on hand – you also have to have rights of access to those calories, or you are out of luck.

Why is this a problem in her article?  Well, Garrett is trying to draw a link between climate change a food prices . . . which are presumed to hit the global poor the hardest.  However, rising prices are only a part of the food security story.  If we don’t know people’s rights of entitlement to the calories they need, then it becomes hard to say if we have enough or not enough food available.

For example, let’s assume that a Ghanaian husband and wife have three children – one girl and two boys.  The household needs, at a basal level around 6000 calories a day to meet basic needs.  We can go to their farm, and measure the food they eat, and get a caloric figure.  Perhaps that figure comes back at 6500 calories per day.  This is not enough to say that this household, and all its members are food secure.  Does the wife and her girl child, have the same rights to food as the husband and boys, or must the females wait for the men to eat their fill, before eating whatever remains?  If the females do not have the same rights of access, it may be that the husband and boys are more than food secure, while the wife and her girls are not.

Certainly, it is useful to know where there simply isn’t any food around – but even this is tricky.  Most people forget that Ethiopia was actually increasing its agricultural exports across its famous mid-1980s famines.  It’s just that the food was sold overseas for foreign currency, which was then used to pay off their national debt . . . as the Ethiopian population starved.

This article addresses but one part of the global food security equation – not enough to make sweeping claims of what is to come.

Frederick Kaufman has a very interesting piece (subscription required) on an underreported phenomena in the 2008 spike in food prices – what he calls a “food bubble” caused by commodities investment vehicles structured around wheat futures.

While I think this article is worth reading and considering carefully, it is important to recall that Kaufman is trying to make a particular point about the pervasiveness of problematic investment vehicles in our economy, and the ways in which these vehicles seem to hurt everyone but the people who invent them.  This point is well-made.  However, in making this point Kaufman underplays a couple of really important points:

1) Wheat is but one of the staples that saw a price spike in 2008.  And while price stress on one staple (wheat) can lead people to start shifting into another (corn), driving the prices of the second commodity up, it would take some serious research to substantiate the (implicit) idea that a price spike in wheat could have a dramatic impact on corn prices in Africa (where wheat is the 8th most important crop, at 3.2% of total agricultural production) (via FAOSTAT).  Wheat is important, but maize is the crop that links the world together . . . which leads to my second point:

2) There was a convergence of factors that created the price spike in 2008.  In one sentence, Kaufman acknowledges several important factors:

“By the time the normal buying season began, drought had hit Australia, floods had inundated northern Europe, and a vogue for biofuels had enticed U.S. farmers to grow less wheat and more corn.”

But this is only one sentence in the whole article.  In an effort to point out the impact of investment vehicles on global food security, Kaufman’s narrative underplays just how important these other factors were in driving up the price of other staples like corn (the extra corn was largely rerouted to biofuels, and the drought in Australia removed a great deal of expected production from the world supply).

The point here: food insecurity is enormously complex, and caused by the intersection of processes and events operating at multiple scales.  Even as we tease out some of these processes and events, we must also highlight how each specific process or event intersects with other causes to produce particular outcomes in particular places.